Revenue & Elasticity at Different Prices

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In summary: So you would calculate arc elasticity for the first four rows, but not for the last row since there is no change in price. In summary, the total revenue column can be completed by multiplying the price by the quantity demanded. The arc elasticity for each price change can be calculated using the formula (% change in Q)/(% change in P) and the definitions of elastic, unitary elastic, and inelastic refer to the value of this calculation, with elastic meaning a value greater than 1, inelastic meaning a value less than 1, and unitary elastic meaning a value of 1. The arc elasticity for the given prices and quantities are -0.33, -0.5, -1.0, and -2.
  • #1
jalen
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Price....Quantity demanded.....total revenue....Arc elasticity(elastic, unitary elastic,inelastic)
10......50
20......40
30......30
40......20
50......10

a)complete the total revenue column

b)complete the arc elasticity for each price change and complete the elasticity column.

Is there an equation I should use to find the total revenue?
Can someone give a brief definition of what elastic, unitary elastic,inelastic mean.
Thanks =)
 
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  • #2
jalen said:
Price....Quantity demanded.....total revenue....Arc elasticity(elastic, unitary elastic,inelastic)
10......50
20......40
30......30
40......20
50......10

a)complete the total revenue column

b)complete the arc elasticity for each price change and complete the elasticity column.

Is there an equation I should use to find the total revenue?
Can someone give a brief definition of what elastic, unitary elastic,inelastic mean.
Thanks =)

Total Revenue is just price times quantity.

Can you give me a definition of "Arc" Elasticity? I've never heard of that term before. I'm just aware of Elasticity and want to know if Arc Elasticity is the same or something different.
 
  • #3
jalen said:
Can someone give a brief definition of what elastic, unitary elastic,inelastic mean.
Elastic means |elasticity| > 1, inelastic is |elasticity| < 1, and unitary elastic implies |elasticity| = 1.
 
  • #4
I'm not sure about the definition exactly, but it has to do with calculations involving...

Q2-Q1 divide by 2
Q2+Q1

P2-P1 divide by 2
P2+P1

= %change
% change (price)

I'm not sure how to apply it to the numbers given...
 
  • #5
jalen said:
Price....Quantity demanded.....total revenue....Arc elasticity(elastic, unitary elastic,inelastic)
10......50
20......40
30......30
40......20
50......10

a)complete the total revenue column

b)complete the arc elasticity for each price change and complete the elasticity column.

Is there an equation I should use to find the total revenue?
Can someone give a brief definition of what elastic, unitary elastic,inelastic mean.
Thanks =)

jalen said:
I'm not sure about the definition exactly, but it has to do with calculations involving...

Q2-Q1 divide by 2
Q2+Q1

P2-P1 divide by 2
P2+P1

= %change
% change (price)

I'm not sure how to apply it to the numbers given...

I think it's just (% change in Q) / (% change in P) at all the various points.

If I am correct then the first one would be -0.2

I found this by calculating:
% change in Q = (50 - 40) / 50 = 0.2
% change in P = (10 - 20) / 10 = -1.0
 
  • #6
Economist said:
I found this by calculating:
% change in Q = (50 - 40) / 50 = 0.2
% change in P = (10 - 20) / 10 = -1.0
A slightly different formula uses the midpoint as the "base" (i.e., the denominator) for each of % change in Q and % change in P:

% change in Q = (50 - 40) / ((50+40)/2) = 10/45 = 0.22
% change in P = (10 - 20) / ((10+20)/2) = -10/15 = -0.67

arc elasticity = 0.22/-0.67 = -0.33 = -15/45.
 
Last edited:
  • #7
EnumaElish said:
A slightly different formula uses the midpoint as the "base" (i.e., the denominator) for each of % change in Q and % change in P:

% change in Q = (50 - 40) / ((50+40)/2) = 10/45 = 0.22
% change in P = (10 - 20)/ ((10+20)/2) = -10/15 = -0.67

arc elasticity = 0.22/0.67 = -0.33 = -15/45.

Thanks EnumaElish. I wasn't aware of that forumula.
 
  • #8
When I work through the calculations...is there only suppose to be 4 answers out of the five row column?
 
  • #9
jalen said:
When I work through the calculations...is there only suppose to be 4 answers out of the five row column?

Yes, because although there are 5 rows, there are only 4 changes.
 

Related to Revenue & Elasticity at Different Prices

1. What is revenue?

Revenue is the total amount of money that a company or organization brings in through the sale of goods or services.

2. What is elasticity?

Elasticity refers to the degree to which the demand for a product or service changes in response to a change in price. A product is considered to be elastic if a small change in price leads to a significant change in demand, while a product is considered to be inelastic if a change in price has little to no effect on demand.

3. How does elasticity affect revenue?

The relationship between elasticity and revenue is an inverse one. If a product or service is elastic, a decrease in price will lead to an increase in demand, resulting in higher total revenue. Conversely, if a product is inelastic, a decrease in price will not significantly impact demand, resulting in a decrease in total revenue.

4. How do you calculate revenue?

Revenue can be calculated by multiplying the quantity of goods or services sold by the price of each unit. For example, if a company sells 100 widgets at $10 each, their total revenue would be $1000.

5. How do you determine the optimal price for maximum revenue?

The optimal price for maximum revenue can be determined by considering both the elasticity of the product and the demand for it. A product with high elasticity may benefit from a lower price, while a product with low elasticity may be able to sustain a higher price. It is important to conduct market research and analyze data to determine the ideal price point for a product or service.

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